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App. Div. 597]

First Department, July, 1921.

ciently broad to enable the taxation of property passing under a power of appointment. The opinion was written by Chief Judge PARKER, and clearly shows that the Court of Appeals was then of the opinion that the property passed to the beneficiaries under and by virtue of the will of the original donor and not through the exercise of the power of appointment by the donee. Chief Judge PARKER says, in part:

"In the past, however, there have been a few cases in which the courts have been called upon to decide that while the instrument by which the power is said to be executed becomes incorporated into and forms a part of the original instrument creating the power, yet it takes effect as of the date of the execution of the power, and these cases have been laid hold of to make the final step in the transfer of the property from the testator Harbeck to the beneficiaries operate as the dominating one; the act of the appointor, instead of that of the testator, being treated as the one by which the fund is transmitted to them. In other words, notwithstanding the general rule by which a paper constituting an execution of the power of appointment becomes incorporated into the original instrument creating the power (so that the latter is given the same effect as if the names of the appointees were originally written into the instrument creating the power), it is said that the date of the original instrument is to be ignored, and that upon which the power of appointment is exercised substituted fully in its stead. But long after the decisions in the cases relied upon by the learned judge who wrote for the Appellate Division this court had that question before it in Genet v. Hunt (113 N. Y. 158) *. The court held that the trusts under the will should be regarded as having been created at the date of the trust deed, and that they were, therefore, invalid. 'An estate created by the execution of a power takes effect in the same manner as if it had been created by the deed which raised the power.'"

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Since the Tax Law was amended in the respects herein before stated, there have been decisions thereunder in which it has been held that while the beneficiaries under the will of a donee of a power of appointment technically take under the instrument creating the power, yet as the possession of the

First Department, July, 1921.

[Vol. 197 property actually passes through and by means of the will of the donee, the bequests to such beneficiaries are taxable. In Matter of Hull (111 App. Div. 322; affd., 186 N. Y. 586) it was held that the taxability of property does not depend merely upon the location of such property, but upon whether the beneficiary came into possession of it through the exercise of a privilege conferred by the State of New York, and that when the donee of a power of appointment who is a resident of this State has received such power from a donor who was also a resident of this State, the property is subject to an inheritance tax upon the exercise of the power of appointment by the donee, although the property itself is situated without the State of New York. The Court of Appeals affirmed the decision of the Appellate Division in the above case upon the opinion of Mr. Justice WOODWARD. In his opinion Mr. Justice WOODWARD said, in part: "The question is not where the property was located, or whether it was real estate or personal property, but whether the beneficiary came into its possession through the exercise of a privilege conferred by the State of New York."

The learned justice then quotes the portion of section 220 of the Tax Law above referred to, and says: "If the subject of the taxation, whether that be property of a tangible nature or a privilege conferred by the State, is within the jurisdiction or dominion of the Legislature, then it is for that body to determine the question of taxation. In the statute now under consideration the State has enacted that as a condition of exercising a power of appointment, it shall be deemed a transfer taxable under the provisions of this act in the same manner as though the property to which such appointment relates belonged absolutely to the donee of such power.'

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* It being the privilege upon the right to succession to property by means of a will that is taxed, and the subject of the litigation being within the jurisdiction of the State, it seems clear that the beneficiary under the power of appointment contained in the will of Caroline C. Hull, a resident of this State, upon the exercise of that power by Wager J. Hull, likewise a resident of this State, is bound to pay the tax imposed upon that privilege, regardless of the question of where the property to which the power related was located.

App. Div. 597]

First Department, July, 1921.

Ida M. Hull gets all of her rights in and to the property by reason of the exercise of the power, a privilege granted by the State of New York, and she may not be relieved from that obligation because of the fact that the property itself was without the jurisdiction of the State at the time the power was exercised."

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In Matter of Dows (167 N. Y. 227) practically the same question was presented, and the court there held: "But whatever be the technical source of title of a grantee under a power of appointment, it cannot be denied that in reality and substance it is the execution of the power that gives to the grantee the property passing under it. * If, as said by the Supreme Court of the United States, the right to take property by devise is not an inherent or natural right, but a privilege accorded by the State which it may tax or charge for, it follows that the right of a testator to make a will or testamentary instrument is equally a privilege and equally subject to the taxing power of the State. When David Dows, Sr., devised this property to the appointees under the will of his son, he necessarily subjected it to the charge that the State might impose on the privilege accorded to the son of making a will. That charge is the same in character as if it had been laid on the inheritance of the estate of the son himself, that is, for the privilege of succeeding to property under a will."

In both of these cases, however, the beneficiaries under the will of the respective donees unquestionably took under a will probated under the laws of the State of New York, whereas, in the case at bar the testatrix had only to execute a will in conformity with the laws of the State of Massachusetts in order to exercise the power of appointment conferred upon her under the wills of her father and grandfather. This she did, and her will has not been offered for probate in this State.

In Matter of Delano (176 N. Y. 486) the Court of Appeals again considered the validity of a transfer tax imposed upon the exercise by will of a power of appointment conferred upon the testatrix. In that case the power had been conferred by deed and not by will. The Appellate Division, First Department (82 App. Div. 147), held that as the deed in question

First Department, July, 1921.

[Vol. 197 was made and delivered prior to the enactment of the Transfer Tax Act, the estate passing upon the exercise of the power of appointment by Laura Astor Delano was not taxable. The opinion in the Appellate Division attempted to distinguish the facts in the Delano case from the facts in Matter of Vanderbilt (50 App. Div. 246; affd., 163 N. Y. 597), in which case the validity of the tax imposed under the aforesaid section of the then existing Tax Law was upheld. The decision of the Appellate Division was, however, reversed in the Court of Appeals (176 N. Y. 486). The Court of Appeals did not question the general rule that the theoretical source of title of the beneficiary under the will of Mrs. Delano was the deed which granted the power of appointment, but held, Judge VANN writing: "The statute, as we read it, does not attempt to impose a tax upon property, but upon the exercise of a power of appointment. The power in this case was exercised by will, in such a way that the appointee, became entitled to all the property, instead of an aliquot part. While the property came to him by deed from his grandfather, only a part of it could have reached him but for the will of his aunt. His title to the most of it depended on the will, as well as upon the deed. He is compelled to resort to the will in order to establish his right, for the deed alone will not suffice. The privilege of making a will is not a natural or inherent right, but one which the State can grant or withhold in its discretion. If granted, it may be upon such conditions and with such limitations as the Legislature sees fit to create. The payment of a sum in gross, or of an amount measured by the value of the property affected, may be exacted, or the right may be limited to one or more kinds of property and withdrawn as to all others. The Legislature could provide that no power of appointment should be exercised by will, or that it should be exercised only upon the payment of a gross or ratable sum for the privilege. It could exact this condition, independent of the date or origin of the power. All this necessarily flows from the absolute control by the Legislature of the right to make a will. As the tax is imposed upon the exercise of the power, it is unimportant how the power was created. The existence of the power is the important fact, for what may be done under it is not

App. Div. 597]

First Department, July, 1921.

affected by its origin. The statute applies to all powers alike, without distinction on account of the method of creation or the date of creation, and provides that the exercise of the power shall be deemed a taxable transfer of the property affected, the same as if it had belonged absolutely to the donee of the power and had been bequeathed or devised by such donee."

The decision of the Court of Appeals in the Delano case was sustained in the United States Supreme Court in Chanler v. Kelsey (205 U. S. 466). The opinion was written by Mr. Justice DAY and the court held that the assessment of the tax under the New York State law was not in violation of the Federal Constitution (Art. 1, § 10, subd. 1; 14th Amend., § 1), and that the State had a clear right to tax the exercise of a power of appointment. The learned justice said, in part, referring to the objection that property was being taken without due process of law: "In support of this contention, common law authorities are cited to the proposition that an estate created by the execution of a power takes effect in the same manner as if it had been created by the deed which raised the power; that the beneficiary takes, not under the execution of the power by the donee, but by authority and under grant from the grantor, in like manner as if the power and the instrument which created it had been incorporated into one instrument. However technically correct it may be to say that the estate came from the donor and not from the donee of the power, it is self-evident that it was only upon the exercise of the power that the estate in the plaintiffs in error became complete. * It may be that the donee had no interest in the estate as owner, but it took her act of appointment to finally transfer the estate to some of the class and take it from others. Notwithstanding the common law rule that estates created by the execution of a power take effect as if created by the original deed, for some purposes the execution of the power is considered the source of title."

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It follows from the above decisions that while upon principle an inheritance tax is not one upon property but is rather one upon the succession of property, the State has also the APP. Div.-VOL. CXCVII. 39

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